In 10 minutes, you will have learned everything that I know from my first year at Walt Disney Studios. I want to share my role, why it exists, and how a major studio functions.
For the past year, I’ve worked in the post-production finance team of Walt Disney Studios. This team is a component of a group that has created Disney’s live-action titles such as Beauty and the Beast, Pirates of the Caribbean, The Jungle Book, and Christopher Robin.
During the first few months, I learned how to do my job. This was the easy part in my opinion. Learning the “how to” is done through repetition over a period of time. But this wasn’t enough for me. I needed to know the purpose of my role. Why does my role exist? This question put me at the base of a steep learning curve.
I hiked the curve for the rest of the year. And as I climbed higher, I understood more of the grand picture. And now, I believe that I’ve reached a vantage point to sketch it out.
What is Production Finance?
When we think about film making, our minds picture the creative process: screenwriting, directing, producing, acting, editing, etc. While these are the literal tasks of film making, there is an agent that fuels the process — money. And when you deal with money, you have to deal with business.
Production finance ensures that a reasonable budget is developed and the allotted funds for each project are spent wisely; this is the literal function of our team. But I believe there is a bigger reason to why we exist. Our team bridges a gap between artists and business people.
At the end of the day, Disney is a business. Its responsibility is to care for all of its stakeholders: employees, customers, public shareholders, and the local economy [when a company gets to this size, it must recognize its influence on local economies]. The company must make wise decisions. A mistake can harm many parties involved: employees have families, local economies can depend on Disney’s park visitors, and investors may put their retirement funds into the company’s stock.
On the flip side, we work with many artists. People have passionate stories and messages they want to share with the world. Stories can inspire and teach others. They can shine light into dark places. They can uncover truths. They can take an audience on an adventure. All of humanity’s connection with the past is linked together by stories — it’s timeless.
Both sides have genuine concerns and motives. But there is a gap. The Walt Disney company cannot afford to take big risks and fail. But there are stories that must be told to remember our past and inspire our future.
It seems like you must pick one side or the other. You are either a business person or a creative. My field of study labels me as an accountant. Businesses only allow me to be as creative as a consultant, while creatives see me as a business person who misunderstands the deep significance of art.
But there is a place that has allowed me to be an advocate for both sides — production finance. This team tries to understand the needs of each group. We try to expand the pie before slicing and distributing pieces. And while it is rewarding to find a place that embraces business and creativity, it is difficult to be the mediator.
The rest of this post will highlight three key functions of our team and how it serves both parties — budgeting, infrastructure, and film incentives.
We budget in our lives everyday: our time, finances, and energy. And the majority of our decisions come down to a cost-benefit analysis. We learn what to prioritize in our lives by asking one question: is it worth it?
Some decisions have small magnitudes while others have large consequences. The larger the magnitude, the more planning and thought that goes into it.
Movie making is a large magnitude decision. Think about it this way: you invest millions of dollars and several years with the expectation to make a profit in 3–4 weekends after theatrical release. If that’s not risky, then I don’t know what is. This is why studios are careful to budget the films they create.
On the other hand, creatives need a blueprint to keep everyone focused. They need to know who will work on the movie, where the movie will be filmed, when it will be filmed, and how it will be filmed.
This is where production budgeting comes in handy. It establishes cost boundaries while planning the logistics of production.
The process begins with purchasing or creating a script, which is stripped down and evaluated. By reading a script and comparing it with similar movies, industry professionals can calculate the costs and plan the logistics required to bring the script to life.
Here are a few things to consider.
First, you need all your people. Most of us know the directors, producers, and actors in a film. But there are many more people running the show. You have camera and lighting crews, construction crews, and set designers. Actors need hair and make up assistance. The wardrobe staff creates outfits according to the script and actor’s physique. Stunt coordinators need to choreograph scenes. And all these people need transportation, food, and housing.
Second, everyone needs their equipment: cameras, rigs, lighting fixtures, make up carts, and tool kits — which are leased out by vendors. Location permits are required when filming on sites. And facilities are rented for stage use and office space.
Finally, there’s post production: editing, coloring, visual effects, sound mixing, and music composing. These tasks stitch all the camera shots together to create the movie. And when the picture is complete, the movie must be converted into a distributable format for theatrical release.
To give you a perspective, Marvel’s Avengers: Infinity War reported a budget of $400M — one of the most expensive budgets you will encounter. On the other hand, Crazy Rich Asians reported a budget of $30M — which is a fairly low budget. All these numbers are searchable online, if you’re curious about any other films.
After we reach a first draft, each side requests adjustments. The business may find areas to save costs or shift funds to other production components. The creatives may revise the script, changing the logistics of the production.
Conflicts often arise between creative desires and budget constraints. For example, a director may want an aerial shot for a specific scene. He/she may strongly believe that the shot will support the tone of the story. But the costs are beyond the budget.
In this situation, the business may find the extra costs too risky. The shot might not be used in the final version. But the director may think it’s worth the risk. Both parties have reasonable intentions, but we have to find some compromise. Maybe we can find savings in another category of the budget. Or maybe we can revise the script and shoot the scene on the ground while providing the same impact. These discussions would be held between both parties.
This topic is pretty business-like. So if you don’t care for financial structures, then please skip to the last part. You’ll enjoy learning about the last topic.
When a project is “yellow lit” [meaning that it has been somewhat approved], it enters the research and development stage. Concept artists are hired. Casting calls are held. Location scouts begin searching for potential locations to film. It’s testing the waters before diving into the deep end.
As more pieces are gathered, our team must prepare for the massive spending that will occur during production. We create subsidiaries to keep the production alive.
But why not have Disney pay for everything directly? Why complicate things with business structuring? There are two reasons: foreign legal requirements and limiting liability. The first reason keeps our creatives up and running throughout production. The second reason protects the studio from additional risks.
If business operations primarily occur in a foreign territory, businesses are usually required to create an entity within that respective country. This is required per foreign law and regulations.
Studios are businesses. Film production is a primary operation. Therefore, films produced in a foreign country require studios to create subsidiaries in that foreign territory. Our team is responsible for making sure everything is running smoothly for our creatives. If we didn’t create subsidiaries according to foreign laws, then there could be set backs with production.
A single film project could require multiple subsidiaries.
For example, a film can be filmed in the UK and Australia. The VFX work may be performed by Canadian vendors. And the sound mixing may be conducted by Californian vendors. As a result, there must be subsidiaries in the UK, Australia, Canada, and the US.
Each subsidiary usually has a bank account in the local currency. In many cases, you can’t pay a foreign vendor in US dollars. You have to pay them in their local currency. Therefore, studios will buy the amount of foreign currency they expect to spend in each subsidiary.
This situation delves into foreign currency hedging. Exchange rates fluctuate the value of currencies around the world. So in order to minimize gains/losses from exchange rates, studios hedge by using forward contracts/options.
Second, subsidiaries are usually created as an LLC (Limited Liability Company). The title may be different in other countries. But the intention is to limit liability for the business.
These subsidiaries take responsibility for everything related to a production. Everyone is hired by the subsidiary. All the labor contracts are signed between the crew members and subsidiary. In addition, all rental agreements and purchases are made under the subsidiary. Almost nothing will be under a studio’s name.
Now let’s say something goes wrong.
Someone gets injured on set — or tragically dies. A lot of unforeseen accidents can happen. Stunts can go wrong. Equipment can fail and injure someone. But please understand that studios are not negligent. To my understanding, they take strong measures to develop safety protocols and have medical staff on site. But accidents can still happen. And you can be sure someone will try to sue, especially if there is reasonable evidence that negligence caused the accident.
This is where the LLC structure can protect studios. These structures limit the liability an owner can take. Therefore, Disney [the owner] cannot have its possessions targeted. Only the subsidiaries can be targeted.
This is the general concept. But I’m sure there are exceptions to this rule such as blatant fraudulent activity or strong evidence of negligence.
This final topic plays a role outside the scope of production finance and film making. While there is an aspect of reducing production costs, incentives can play a significant role to local economies.
To put it simply, film incentives are government discounts on production costs. The incentives behave like a subsidy, except you have to spend money before you get your discount. The expenditures must be related to film production and occur within the appropriate jurisdiction. Through legislation, governments set aside funds to sponsor these film rebate programs.
The calculation can be as simple as this: For every dollar spent, we [the governing body] will give you X percent back when you apply for credit.
Just to shed light on how these calculations may work, here are a few locations that provide incentives.
- United Kingdom provides 25% rebate on qualifying expenditures.
- New Zealand provides 20% + 5% [upon additional requirements].
- Atlanta, GA provides 20% + 10% [upon additional requirements].
The potential savings can be enormous when you take a +$150M film and apply it to these percentages. Just to clarify, you don’t just submit an application and get your money. Film commissions will audit the expenditures to evaluate the legitimacy of qualified expenses. And there are other rules and criteria to abide by — according to each country or state.
It’s a weird concept — right?
Why would governments offer to bear the costs incurred on film productions? Shouldn't that money be used for other programs such as healthcare, education, infrastructure, etc?
The answer depends on one’s opinion of a government’s responsibility. Some believe that government involvement can improve the economy. Others disagree and do not want government interference. In the case for film incentive programs, some governing bodies believe that films can create jobs or drive tourism revenue to benefit the local economy.
Atlanta’s state government is a key example of job creation through its incentive program. The city didn’t suddenly become a key destination for moviemaking overnight. It took years of investing to build facilities and train people for studios to hire. And now, filmmakers flock to this city for gigs while studios continue to produce films here.
With the right people, resources, and film incentives, it’s no surprise that studios pump their projects into Atlanta. Studios can save money and hire top talent. Marvel Studios has become a big spender in Atlanta for its films. Other examples include Netflix’s Stranger Things and AMC’s The Walking Dead.
Tourism revenue is another motive behind the film rebate programs. Governments may encourage films to produce in their country to capture the beauty of its lands. In return, the film showcases it to the world on the big screen. When Lord of the Rings was released, everyone wanted to visit New Zealand. People could walk the lands of Mordor or visit the Shire, thus generating tourism revenue for New Zealand’s economy.
You now know everything I’ve learned in the past year at Disney. But more importantly, writing this post served as a reminder for me about the big picture. My role exists to be a communicator between two groups. And it promotes to embrace my business background while feeding my desire for creativity.
If there is anything you’d like to discuss more in detail, then please do share! I enjoy having discussions that cultivate learning and expand perspectives.